Mov­ing for­ward

Bay­lor, Scott & White reach agree­ment on deal

Modern Healthcare - - LATE NEWS - Me­lanie Evans

Bay­lor Health Care Sys­tem and Scott & White Health­care are headed to­ward be­com­ing the largest not­for-profit sys­tem in Texas and one of the big­ger ones in the U.S. It took longer than they’d hope to get there, but the or­ga­ni­za­tions reached a de­fin­i­tive merger agree­ment last week to cre­ate a $7.7 bil­lion health sys­tem. Ne­go­ti­a­tions for the deal ex­tended be­yond an April dead­line.

The part­ners knew early on that the sched­ule was ag­gres­sive, and it proved to be, said Joel Al­li­son, Bay­lor’s pres­i­dent and CEO. He called the agree­ment a ma­jor step for­ward.

Dr. Robert Pryor, pres­i­dent and CEO of Scott & White, said that ag­gres­sive timetable fo­cused ev­ery­one’s at­ten­tion so the part­ners could “get it done and move on.”

Now the Fed­eral Trade Com­mis­sion and Texas at­tor­ney gen­eral will re­view the deal’s po­ten­tial im­pact on com­pe­ti­tion. Scott & White op­er­ates hos­pi­tals clus­tered around Tem­ple, Texas, a city about 130 miles south of Dal­las that’s home to its flag­ship fa­cil­ity and head­quar­ters. Bay­lor— the larger party to the deal—has all of its hos­pi­tals in the Dal­las-Fort Worth area. Their ser­vice ar­eas come close but don’t over­lap.

The Texas In­sur­ance Depart­ment must also re­view the deal be­cause Scott & White owns an in­surer. That was one thing that drew Bay­lor to the ta­ble, Al­li­son said.

The shift un­der­way to pay hos­pi­tals and doc­tors to bet­ter man­age pa­tients’ care and costs re­quires data col­lec­tion and anal­y­sis and ex­per­tise man­ag­ing fi­nan­cial risk, which an in­surer can pro­vide, Al­li­son said. Bay­lor saw an op­por­tu­nity in the Scott & White deal to gain ac­cess to those as­sets, which it would oth­er­wise have to de­velop in­ter­nally or ac­quire, though deals or joint ven­tures. Scott & White Health Plan is pre­par­ing a big push to sell cov­er­age on the in­sur­ance ex­change cre­ated un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act (April 29, p. 6).

The deal is ex­pected to close this fall. If suc­cess­ful, the com­bined sys­tem will have $7.7 bil­lion in as­sets and $6 bil­lion in net rev­enue, Al­li­son said, cit­ing last year’s au­dited fi­nan­cial state­ments. The new par­ent com­pany, with head­quar­ters in Dal­las, would be called Bay­lor Scott & White Health. The med­i­cal staffs would re­main in­de­pen­dent at the out­set and “grow to­gether” as the new sys­tem ma­tures, ac­cord­ing to an out­line of the struc­ture. A new board would have equal rep­re­sen­ta­tion from each in­sti­tu­tion.

Al­li­son would be named CEO of the new com­pany, and Pryor is ex­pected to be its pres­i­dent, chief op­er­at­ing of­fi­cer and chief med­i­cal of­fi­cer, as well as pres­i­dent of its Tem­ple­based ser­vice com­pany.

Al­li­son said he be­lieved that “ex­e­cu­tion risk”—threat to op­er­a­tions and strate­gic goals that merg­ing com­pa­nies face while a trans­ac­tion di­verts time and re­sources—will be min­i­mal be­cause a cul­tural au­dit found the po­ten­tial part­ners “much more alike than dif­fer­ent.”


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